Jaden and Noel Are Starting a Computer Repair Business Together

question 10

Multiple Choice

Jaden and Noel are starting a computer repair business together. Jaden insists on outlining rules for the departure of partners in the partnership agreement, although Noel does not think it is necessary. Which of the following statements might Jaden use to explain his insistence to Noel?

• A)Provisions to remove a partner's ownership interest are necessary so the business would not have to liquidate.
• B)Determining the allocation of profits to new, junior partners is important to eliminate future potential conflicts.
• C)Responsibilities must be clearly delineated to avoid the possibility of one partner overstepping his or her bounds.
• D)As the partnership matures and ages, defining how profits and losses will be distributed must be made.

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Definitions:

Fixed Production Costs

Expenses that do not fluctuate with the level of production output, such as depreciation on factory buildings and salaries of certain managers.

Depreciation

An accounting method of allocating the cost of a tangible asset over its useful life.

Period Cost

Costs that are expensed in the period they are incurred and are not directly tied to production activity.

Indirect Costs

Costs that cannot be directly linked to the production or sale of a specific product or service, such as administration, rent, and utilities.